If you’re considering starting a business in ecommerce, you’ll probably be aware of the dropshipping model. Dropshipping is essentially where you promote and sell the products of another company and sell them (or are perceived to sell them) as your own. For each sale made, a commission is taken which forms your revenue from dropshipping. The supplier handles the production and postage of the item, and in some cases, also manages the returns.
Dropshipping can be a tempting option to those starting out in ecommerce, as it has almost zero upfront costs to launch a business and is therefore almost risk free. However, if you plan to grow a business, there are several things to consider if you’re thinking of using the dropshipping route.
- If you’re dropshipping a fairly popular product, or even a minor popular product, you’ll be competing with other dropshippers. This can mean having to set your price in line with the competition, if not lower, as people will be unwilling to pay for the same product, unless it comes with an exceptionally high level or service or aftersupport – which also costs you in time and money.
- It can be difficult to get a decent margin. The difference between the dropshipper prices and your own price is your margin, and this is often tough to get right in competitive spaces (see this example for the t shirt market). As many in business will tell you, building a business on minimum margins can be a recipe for disaster, especially if you are working with minimal budgets.
- If you do happen to make a success of your dropshipping business, there’s nothing to stop the supplier from cutting you off and effectively shutting down your business – if it’s focused on the single product or drop shipping brand.
They can also take a look at your marketing tactics and simply replicate what you’re doing, and are able to do so with lower prices as they are the producer of the product.
- Building a brand around drop shipped products is difficult, as you have little to no option of branding the actual product, as it is not yours to brand and in most cases is not even in your possession. This can make driving repeat sales difficult.
It’s even difficult, if not impossible, to add any sort of branding to the posted item, such as a branded postcard or discount offer, as they dropshipper will most likely not offer this as a service. Even if they do offer this as a service, it will need high volumes for them to consider it and will no doubt come with it’s own fee, which further drives down your margins.